Current Market Indications Point to Potentially Robust Economic Growth in 2018

It has been nearly a decade since the end of the Great Recession. After such a lengthy period of recovery, there are now signs that the US economy is finally poised to experience robust growth throughout 2018. Perhaps most importantly, current market trends have economists especially optimistic about the possibility of pervasive growth, with many analysts expecting a significant acceleration in wage gains.

During the long period of economic recovery that began in 2009, the US economy posted an average growth of 2.1 percent, with 2.9 percent (2015) representing the high-water mark. Due to the expectation of continued business investment and rising consumer spending, analysts are projecting a 2.6 percent rate of growth for 2018, an increase of 0.3 percent from the 2017 projection (2.3 percent). Since the 2018 projection was made prior to the passage of tax legislation, it’s reasonable to conclude that the 2.6 percent figure might approach a full 3 percent.

Of course, these projections never rely on any single market indicator, and a number of recent developments have contributed to the optimistic economic projections for the year ahead. Consumer demand for automobiles, combined with continued technological innovation as well as the recent rally in oil production, has been instrumental in the recovery experienced in the manufacturing sector. With the global economy also growing stronger, other sectors in the US have enjoyed significant benefits as well.

These recent domestic and international gains continue to play an important role in the declining unemployment rate in the United States. At 4.1 percent, the nation’s unemployment rate is the lowest posted in the aftermath of the Great Recession, when the unemployment rate reached 10 percent in 2009 (prior to 2009, it hadn’t eclipsed 10 percent since 1983).

Even at the current rate of 4.1 percent, analysts tend to agree that the downward trend will continue in 2018. This is good news for American workers, as employers will be forced to compete for new hires and will likely adopt stronger policies intended to retain current employees. Employers will also have to seriously consider instituting robust training programs to help fill existing vacancies, which will give American workers the opportunity to expand their skill set without investing in potentially costly academic programs or vocational schools.

It’s these conditions — an ever-tightening labor market at a time when companies have immediate and expanding employment needs — that have economists confident that wage growth with finally experience significant gains after stagnating for nearly a decade. According to current projections, analysts are predicting an increase of 2.5 percent for 2018, with gains growing stronger with each passing month until finally exceeding 3 percent at year’s close.

When wage growth rises at a rate approaching 3 percent, it’s only natural to expect a commensurate increase in consumer spending, which is responsible for approximately 70 percent of the US economy. Consumer spending is expected to increase at a rate of 2.5 percent, and business investment is projected to grow at a rate of anywhere from 4.5 percent to 6 percent or more.

The recent tax legislation is expected to further bolster these projections, although it remains possible that the overwhelming majority of corporations will opt to use the tax cuts to increase dividends or buy back stock rather than investing in employees by increasing wages or expanding benefits.

Although the full economic impact of the recently passed tax cut legislation remains to be seen, economists recognize ample reason for optimism about the possibility of economic growth in the year 2018. The most recent projections for economic growth are supported by a number of critical market indicators, including declining unemployment rates, increasing wage gains, and the likelihood of increased business investment, all of which contribute to the growing confidence in the future of the US economy.